Italy sinks deeper into recession

Italy, eurozone's third-largest economy, has slid into a deep recession as the country's gross domestic product (GDP) shrank 0.9 per cent in the fourth quarter of 2012 amid political instability following last month's general elections leaving no party any majority to form a government.

Data released yesterday by the Italian national statistical institute ISTAT revealed that country's GDP has contracted 2.8 per cent in the quarter compared to a year ago.

Overall, the GDP shrank 2.4 per cent last year, after a 0.4-per cent expansion in 2011.

Global credit rating agency Fitch downgraded the country's sovereign credit rating by a notch to BBB+ with negative outlook from A- on Friday, citing deep recession, mounting debt and political instability as the reasons.

Fitch noted that the Italian recession "is one of the deepest in Europe," and cautioned that "the increased political uncertainty and non-conducive backdrop for further structural reform measures constitute a further adverse shock to the real economy."

Further to the rating cut, the Italian government's 10-year bond yields moved up 4 basis points to 4.64 per cent on Monday's trade.